Examining the regulatory framework for pensions in India

Pensions primarily act as a buffer against old-age income insecurity. In the context of rising life expectancies, both globally and in India, having access to reliable old-age income security is urgent. While globally, populations aged 65 years and above are poised to touch 20%, per World Bank estimates, statistics from India indicate that the elderly population is poised to touch 19% by 2050. The importance of pension reforms is hence, timely and urgent.

In the Indian context, the present regulatory framework for pensions is highly fragmented, with multiple regulators, governing regulations and schemes. Such disparity does not lend itself well to creating simple, effective and harmonised pensions for all citizens. Further, the tilt towards securing pensions and social welfare for individuals in the organised workforce creates concerns about unequal access and inadequate protections offered to others. This disparate state of affairs, therefore, points to the need to discuss the challenges inherent in India’s pensions framework

Given the imperative for reform, the present report analyses the regulatory framework governing some of India’s largest pension schemes. While in a previous report,  we have discussed in detail, issues plaguing some of the flagship pension schemes meant for India’s informal sector workforce, the present report takes this discussion forward. 

The present report undertakes a broad review of issues plaguing India’s pensions regulatory framework generally. Within this framework, we focus on some of India’s biggest pension schemes such as the Employees’ Provident Fund and the National Pension System. Some of the key issues we look at are directly posed by the fragmented pensions framework such as the challenges posed by the classification of pension regulations, while other issues are more systemic and concern funding of pensions, tax distortions, dispersed investment guidelines and inadequate consumer protection.

Looking at best practices across selected jurisdictions and a critical analysis of some of the issues inherent in India’s existing pensions framework, we make a case for a comprehensive harmonisation of India’s fragmented pensions regulatory framework. We argue that multiple regulators, regulatory frameworks and legislations governing retiral income security, inhibits the development of an inclusive and equitable pensions framework, which provides equal opportunities and rights to all citizens. Therefore, we urge that all existing and new pension programmes should be guided by similar regulatory principles.

Based on our analysis, we set out certain recommendations for reform, both long-term and short-term. These include for instance, recommendations in relation to harmonising the existing pensions framework and investment guidelines, reducing tax distortions available to certain pension schemes, creating an enabling framework for resolving distressed pension funds, clarifying the role and function of existing pension regulators and requiring mandatory regulatory consultation and co-ordination.

At a time when India’s pensions framework is in the news, evidenced by the introduction of new schemes such as the Pradhan Mantri Shram Yogi Mandhan Scheme, a holistic re-look at the broader issues inherent in this framework is overdue and necessary. We hope that this report will initiate a conversation in this regard, and set the stage for reforms which would assist in making India’s existing pensions framework harmonised, accessible, and transparent, providing sustainable, and equitable retiral incomes for all citizens.

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